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Japan Internet Report No. 59 July 2001
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In this month's issue:
- Baghdad by the Bay
- Cell phones as transaction mechanism
- Interview with Isaac Levanon
- Teens on wireless
- Quote of the month
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Baghdad by the Bay
Earlier this month I had the pleasure of serving as chairperson for a day of the Japan Mobile Telecoms conference in the great city of San Francisco - "Baghdad by the Bay," as the late columnist Herb Caen used to call it. So I'm on a mobile kick for another month, but I promise to talk about something else in August.
During the opening speech of the conference, I succeeded in annoying some of the attendees with my prediction that the profitability of the fee-for-content business, which is heavily dependent upon ringtone download services, will eventually be driven to zero. The falling profitability of current services, the inevitable opening of Japan's carrier-operated "walled garden" portals, ever-stiffening competition, and growing consumer resistance to content fees all point toward this.
More and more I see a shift away from fee-based "content" (actually services - see "There's no killer content" ) and toward the use of content/services in pure marketing applications. Most companies in Japan that deal directly with consumers are either implementing or seriously considering initiatives involving the use of Internet-enabled mobile telephones as a marketing channel.
At the same time, much of this activity is knee-jerk, "me too" response to competitor actions, and in some cases the return on investment is actually quite poor. But that's one thing I love about this market - hell-bent pursuit of the new and untested, under the overarching principle that the purpose of a business is to acquire and keep customers, not to "make money" per se. As Theodore Levitt once put it, making money is a byproduct of a successful business, not the purpose of it. And over the long-term, Internet-enabled mobile telephones will do far more for businesses by acquiring and keeping customers than by selling ringtones and screensavers.
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Cell phones as transaction mechanism
Use of Internet-enabled mobile phones as a transaction mechanism is picking up as well. According to Takuya Miyakawa of Japan Netbank, an online bank specializing in small price-point transaction services, "Demand for instant purchase settlement using cellular telephones is strong. The number of transactions we handle has been doubling monthly since April..."
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Interview with Isaac Levanon
This month we met Isaac Levanon, the CEO of FlyOver Technologies, Inc., a company that is developing technology to stream high-resolution digital maps over narrowband connections - especially wireless. He agreed to spend some time telling us about his company and his plans for the future.
- Tell us a bit about yourself. Where did you grow up, and how did you get into your current line of work?
I grew up in Israel and served as a pilot in the Israeli Air Force. After my marriage in 1979, I left Israel with my wife and went to the U.S. to study Industrial Engineering. By pure luck, I ended up working at ComputerCraft, the first personal computer store in Houston, Texas - while also attending university full time. By the time that I left four years later, ComputerCraft had grown from one store to a chain of 60 stores. I performed a range of jobs at the chain, and eventually became the company's VP of Sales.
Managing one of the stores in 1982, I had a helper named Michael Dell. He worked in the evenings and on weekends. This was just before he went to Austin for college and started PC Limited from his dorm room - which later become Dell Computer. ComputerCraft went public in 1983 and I left them in 1985 to join the nascent PC clone industry. I was Leading Edge's VP of Marketing and was instrumental in the launch of one of the first successful clone PCs, the Model D - the King of the Clones. Later I started and was the CEO of Arche Technologies, another PC maker. We were the first manufacturer to back our products with two-year warranties, and we received awards from PC Magazine, InfoWorld and others. I founded Reliable Product, another PC maker, in 1991, and later I moved on to full-motion video - working on a 24-bit frame grabber, video editing and in-home wireless multimedia.
FlyOver started from playing a game with a 3D engine that allows users to maneuver over an object. I thought that mapping an image over the object would make a better impression, so we took an aerial photo and played with it. We realized that it is really cool and very intuitive. It took me some time to realize the potential of the software we had developed and to start FlyOver. This happened in March 2000 and I haven't slept since.
- Can you tell us more about the FlyOver software and the technology it uses?
Our intent with FlyOver is to replace the current digital maps we use on our PCs, PDAs and mobile phones. Originally, maps were images of the territory they covered. However, in the analog world these were too expensive to reproduce, and an entire industry was created to convert these images to inexpensive charts filled with lines, marks and symbols we learned to decipher. Now that we are moving increasingly towards digital media, we take these analog paper solutions and convert them into digital maps, giving us the same look and feel with the same symbols, but on our digital devices. We believe that this is a poor use of the power of digital media. In the digital age we can and should view the original images. Generation X and Y should view Visual Maps(TM) without the legend and fly over them just as they do in the video games they have grown up with. In addition to full flyover capabilities with smooth continuous panning and zooming capabilities, Visual Maps also feature links to related location based content, such as the nearest restaurant and the route to it.
The technology is patent pending (seven so far) Packet Data Streaming technology over narrowband connections with an extremely thin client plug-in. It is optimized to stream huge images (gigabytes) over narrowband (as low as less than 1Kb/s) quickly and efficiently to reduce streaming time, so that users' phone bills will remain small despite the rich media.
FlyOver will be available anywhere digital maps are used today, including Web sites, in-car navigation systems, PDAs and cellular phones.
- How is your service different from other mapping services currently available? What will you offer the user that they can't do right now?
It will replace today's dull maps with rich, color imagery at higher resolution that is fun to view and fly over. It will solve one of the most fundamental challenges that affects maps: landmark navigation. For example, all circles in maps of Barcelona look the same - a colored circle. But in real life, each circle has a different fountain. With actual images rather than symbolic representations, users can relate to the map by looking at the real world building or intersection for orientation. Similarly, in Japan, Tokyo's multi-level highways are a major challenge for map makers, and even more so for the map users. Our Visual Map with its perspectives and selectable angle of view and orientation solves this problem, making orientation substantially easier. I strongly believe that once users sample Visual Maps they will never go back to regular maps. Would you give up your color TV for a black and white set? I don't think so!
- I understand that you're trying to offer your service to Internet-enabled cellular phone users in Japan. Would you care to comment in a general way on that process?
I believe that Japan will be our first market. Factors like consumer penetration, wide acceptance, market size, mobile device capabilities, well-developed cellular networks, and a business model that compensates content and service providers clearly indicate that this is the best market to be in.
Maps on cellular phones are now available both on DoCoMo's i-mode handsets and through J-Phone's J-Navi. These are very popular and profitable services. We intend to offer our services at a competitive price point, working with all carriers to bring Visual Maps to their users. We are now working closely with the carriers and the leading mobile device manufacturers in order to bring our solution to the market quickly. is. I believe that Japanese users will enjoy the benefits of our technology on their cellular phones and car navigation systems early next year.
One thing that's for sure is that to enter this market you better have the right product at the right time, plenty of perseverance and a bit of luck.
- We have had the opportunity to sample the FlyOver service both on a iPaq connecting over a wireless modem and on a desktop PC, and it offers a very interesting experience markedly different from using a traditional digital map. If you would like to try the service, please contact Isaac.
Isaac Levanon
CEO
FlyOver Technologies, Inc.
Tel: (408) 615-8411
isaacl@2flyover.com
http://www.2flyover.com
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Teens on wireless
Readers who have spent time in Japan know the peculiar social position occupied by high school girls here. Japan's adult society is deeply - some might say disturbingly - interested in the daily lives of these girls. Maybe that's why they wield immense influence as a trendsetting consumer group that drove the explosive success of Bandai's Tamagotchi, among other products. Because these girls are intensely style-conscious and price-sensitive, they are widely viewed as bellwether consumers. Many manufacturers have learned from long experience that if their new product is a hit with high-school girls, it will be adopted in "mainstream" Japan as well. With this in mind, we were interested in a local publication's recent interview with a group of high school girls on the subject of cellular telephones.
The discussion began with handset design - the single most important factor influencing the girls' choice of handset (and thus carrier). The mobile gals generally agree that the larger screens of the "paka-paka" handsets (named for the sound these clamshell handsets make when folding and unfolding) make them cooler than non-folding handsets, but several panel members object to the size and weight of these phones, which tend to be slightly wider and heavier than their non-folding counterparts. In Japan, the natural tendency is for consumer electronics to become smaller and lighter over time (the "keihakutansho" phenomenon) but Internet-enabled phones introduce a new wrinkle: demand for larger and larger screens. We are confident that Japanese handset manufacturers will resolve these contradictory requirements with brilliance and style, as usual.
Now that handsets are at parity with basic features such as storing addresses and using ring tones, manufacturers need to find innovative new ways to differentiate their products. The growing power of the "soft" features of the mobile hardware was vividly demonstrated when one gal pulled out her J-Sky "paka-paka" phone and showed the others how she can specify the sound effect that is played when she unfolds the device. This elicited an appreciative chorus of "cool!" from her peers, and prompted a teenybopping colleague to comment "that's the kind of playful little idea that clinches my decision on which handset to buy!" Marketers take note...
The discussion then turned to ringtone melodies and screen wallpaper, the two most popular applications for Internet-enabled phones after e-mail. One participant admitted that she is using a pirated image of a Japanese pop singer, which she got from a friend who e-mailed it to her. There was general agreement among the group that especially good ringtones and images are frequently exchanged between friends by wireless e-mail. A remark by the interviewer that the girls have no conception of copyright laws resulted in vacant, unperturbed assent.
Considering that Japanese music stores do booming business in CD rentals, it seems that copyright infringement on cellular handsets - with their tiny screens and tinny speakers - would be a low priority. Slow download speeds and relatively high data transfer fees make it impractical to use current Internet-enabled cellular services as a platform for music or film piracy. But all this could change in a year or two. The launch of DoCoMo's 3G service and - perhaps more to the point - the release of Bluetooth-enabled handsets could lead to the birth of a wireless, decentralized Napster, in which a user's phone queries every handset within range of a Bluetooth transmitter, searching for specified files. This prompts the question: Are Panasonic, Mitsubishi, and the Bluetooth Consortium are ready to face a suit from the RIAA?
Finally, you will no doubt be glad to know that high school girls, those pitiless arbiters of style, have decreed that long straps used to hang the phone around one's neck, as well as attaching multiple straps and charms to the phone, are now officially "uncool."
"Simple is in," they say.
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Quote of the month
Jack Ma, President of Hong Kong-based Alibaba.com:
"The lessons learned from success stories only apply under certain conditions. But examples of failure teach us all something."
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Tim Clark
Strategy Director, Japan
tim@jir.net
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Copyright 2002 by Ion Global All rights reserved
Tel: +81 3 5777-3810 Fax: +81 3 5777-3814
Ion Global
strategic e-business integration
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